But despite this enormous popularity, are Lloyds shares a good investment? And if not, what would be a better option for my portfolio?
Inspecting performance of the most popular UK share
Despite what the immense popularity of this stock would suggest, Lloyds has been a pretty terrible investment over the past two decades. And in the last five years, the performance hasn’t exactly improved. In fact, a £1,000 investment in December 2017 would currently be worth around £675, excluding the effects of inflation.
To be fair, this timeframe does capture the market crash in early 2020, triggered by the pandemic. But even if I measure between December 2017 to December 2019, the return is still a disappointing -14%. By comparison, the FTSE 100 index only fell 3% over the same period.
OK, the banking sector hasn’t exactly enjoyed the most favourable operating environment in recent years. With interest rates being so low, the ability to profit from issuing loans to individuals and businesses has been quite limited. Fortunately, for Lloyds and its shares, that may soon change.
With inflation on the rise, interest rates are expected to follow suit, improving the company’s profitability in the process. But why would I invest in a complex banking giant when there are far simpler alternatives in the financial sector that could yield better returns?
A more attractive option than Lloyds shares
Financial service businesses have been getting a lot of attention in recent years, especially those embracing technological innovation. One in particular that has caught my attention is Alpha FX (LSE:AFX).
Like Lloyds, the firm offers currency risk management solutions to corporate clients. The realm of forex hedging is exceptionally complicated. Yet it remains necessary for international businesses to protect their bottom line from fluctuating exchange rates.
While Alpha FX is a young company, its unique pay-as-you-go-like billing structure has made it a far more affordable and cost-efficient method for businesses, especially those too small to qualify for the services provided by traditional banks like Lloyds.
But beyond this core service offer, Alpha FX recently unveiled a brand-new enterprise-facing payments network. Using this system, sending large quantities of capital abroad can be done exceptionally quickly compared to traditional wire transfers that are both expensive and time-consuming.
Being a young business, an investment in Alpha FX undoubtedly carries more risk than buying Lloyd shares. It’s certainly not the only financial services business out there offering these solutions. And the rising level of competition could make it difficult to continue expanding, or retaining market share.
Having said that, performance has been rather extraordinary, so far. Over the last five years, the stock has exploded by 280%! Compared to the -14% delivered by Lloyds shares, that’s quite a remarkable difference. And far more enticing for my portfolio.
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Zaven Boyrazian owns shares of Alpha FX. The Motley Fool UK has recommended Alpha FX and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.